Silvergate (NYSE:SI), a west coast banking operation that has been a leader in supporting the digital asset sector, is not getting a lot of love these days. Its relationships with previously high-flying crypto platforms have come back to haunt the bank. Silvergate started 2022 with its shares trading at around $130 – today, Silvergate is trolling its 52-week low, hovering around $24 after losing over 8% just today. Silvergate got smacked today with a big downgrade from Morgan Stanley that investors took to heart. The analyst told investors to “reduce their exposure” in the bank until the dust settles in the FTX/Alameda bankruptcy debacle – because who knows when things will return to a sense of normalcy and what kind of skeletons remain in the closet before that happens.
In a press release last month, Silvergate acknowledged its relationships with FTX and Alameda, reporting that it held $11.9 billion in total deposits from digital asset customers, of which FTX represented less than 10%.
Silvergate CEO Alan Lane took an extraordinary measure today, posting a public letter defending his bank’s operations. Lane, in an understatement, said that it has been a very difficult few weeks in the digital asset industry. Noting that they have come to terms with the “apparent misuse of customer assets and other lapses of judgment by FTX and Alameda Research,” Lane said all of their customers continue to have access to their funds.
“I wanted to take this opportunity to set the record straight about Silvergate’s role in the digital asset ecosystem and what we have always done, and continue to do, to ensure our customers act in accordance with our robust risk management controls. We take risk management and compliance extremely seriously. Silvergate operates in accordance with the Bank Secrecy Act and the USA PATRIOT Act. For each and every account, these laws require us to determine the beneficial owner, the source of funds, and the purpose and expected use of funds.“
Regarding FTX and Alameda Research, Lane said they had conducted “extensive due diligence” on the two firms. What he did not do is admit they have missed a thing or two.
Lane said they have ample liquidity and a strong balance sheet, indirectly countering short seller opinions and any possible rush to cash out of accounts by their customers.
“In addition to the cash we carry on our balance sheet, our entire investment securities portfolio can be pledged for borrowings at the Federal Home Loan Bank, other financial institutions, and the Federal Reserve Discount Window – and can ultimately be sold should we need to generate liquidity to satisfy customer withdrawal request. We intentionally carry cash and securities in excess of our digital asset-related deposit liabilities. We purpose-built this business to support our customers not only during periods of growth but also in periods of volatility – that is, our business is designed to accommodate deposit inflows and outflows under a range of market conditions.”
These are perilous times for the digital asset industry…